Professional Documents
Culture Documents
COURSE DESCRIPTION:
Basic and general economics concept, theories and
principles, concepts of land reform and taxation in the
Philippines.
GENERAL OBJECTIVE:
The course aims to provide students with an understanding of
the principles of economics with backgrounds in land reform
and taxation
LECTURE TOPICS:
Orientation
A. Philosophy, Vision, Mission and Goals
B. Core Values
C. Overview of the Course
D. Requirements of the Course
E. Faculty & Student Expectation
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 1
B. Target Goals of an Economy
C. Measure of Economics Performance
LABORATORY EXERCISES:
1. Introduction to Economics
2. Demand
3. Utility
4. Demand Elasticity
5. Supply
6. Market Equilibrium
7. Production Function
8. Cost and Profit Maximization
9. Consumer Price Index and Inflation Rate
10. National Income Accounting
11. Unemployment
12. Land Reform
13. Taxation
REFERENCES:
Tan-Garcia, Yolanda., Economics 11 Workbook,3rd edition, CEM,UPLB
Sicat,Gerardo P., Economics, National Bookstore, Manila, 1983.
Pagoso,Cristobal M. et.al., Principles of Economics, Rex
Bookstore, Quezon City, 2008
COURSE REQUIREMENTS:
1. Workbook/ Exercises
2. Seminar before the Final Exam
3. Long /Chapter Quizzes
4. Midterm Examination
5. Final Examination
MODE OF EVALUATION:
Long (Chapter) Quiz 25%
Class Participation 15%
Midterm/Final Exam 40%
Project/Exercises 15%
Attendance 5%
Total 100%
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 2
TEN PRINCIPLES OF ECONOMICS
Economics………
- came from the word “oikonomia” a Greek word which means
management of the household
The Forces and Trends that Affect How the Economy as a Whole
Works:
The standard of living depends on a country’s production
Prices rise when the government prints too much money
Society faces a short run trade-off between inflation and
unemployment
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 3
Efficiency vs. Equity
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 4
Adam Smith made the observation that households and firms
interacting in markets act as if guided by an “invisible
hand.”
Because households and firms look at prices when
deciding what to buy and sell, they unknowingly take
into account the social costs of their actions.
As a result, prices guide decision makers to reach
outcomes that tend to maximize the welfare of society
as a whole.
Principle #9: Prices Rise When the Government Prints Too Much
Money
Inflation Unemployment
Summary:
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 5
When individuals make decisions, they face tradeoffs among
alternative goals.
The cost of any action is measured in terms of foregone
opportunities.
Rational people make decisions by comparing marginal costs
and marginal benefits.
People change their behavior in response to the incentives
they face.
Trade can be mutually beneficial.
Markets are usually a good way of coordinating trade among
people.
Government can potentially improve market outcomes if there
is some market failure or if the market outcome is
inequitable.
Productivity is the ultimate source of living standards.
Money growth is the ultimate source of inflation.
Society faces a short-run tradeoff between inflation and
unemployment
CHAPTER I
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 6
INTRODUCTION TO ECONOMICS
I. Definition of Economics
2. Richard Leftwich
3. Paul Samuelson
4. Michael Todaro
5. Gerardo Sicat
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 7
A social science that deals with the allocation of scarce
resources to the production of goods and services to satisfy
unlimited human wants.
SUMMARY:
ECONOMICS
- is a scientific study concerned with human behavior. It
is therefore a social science
- its principal concern is with choices, in the present and
over time. Choices covers the production of commodities,
their distribution, and the consumption of the
commodities
- advantages of economics over other social sciences:
a. the economic motives of human beings are more regular
and therefore predictable
- economic problems arises due to the scarcity of goods
except goods that are valuable to life that maybe
abundant and may become free (air)
- economics can be useful in the understanding of why
countries grow or remain poor
Economic Activity
1. human wants
2. resources
3. techniques of production
1. varied
2. insatiable (in the aggregate over time)
b. Origin of wants
1. They arise for what the human organism must have in order
to continue functioning.
2. They arise too, from the culture in which we live, for
every society dictates certain requisite for the “good
life”.
3. Finally, wants are generated by the activity necessary to
satisfy other wants.
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 8
a. Types of resources
1. land resources – consists of the lands and natural
resources used to produce goods
2. labor resources – consists of labor power or the
capacity for human effort, both of mind and
muscles, used in producing goods
b. Characteristics of resources
1. most resources are limited in quantity or scarce
2. they are versatile
3. they can be combined in varying proportions
i) a consumer/household
ii) a producer/seller
iii) a resource owner
- deals with the problem of individual choice, demand,
costs of production of the firm and the structure of the
firms
i) household sector
ii) business sector
iii) government sector
iv) foreign sector
Consumption expenditures
BF
HH
factors of production
income
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 9
a. General types of economic systems
1. free enterprise economy – characterized by private
ownership of resources as well as goods and
services
- prices set by the conditions of demand & supply;
competition is supreme; price is the guiding
factor for producers to know what & how much to
produce
1. what to produce?
2. how to produce?
3. how much to produce?
4. for whom the goods are to be distributed?
Types of Market
1. Perfect competition
Characteristics:
a. homogeneity of the product
b. smallness of buyers and sellers relative to the market
c. absence of artificial restraints
d. mobility – freedom of entry and exit from the industry
e. perfect knowledge of the market
2. Monopoly – is a market situation in which only one firm
sells a product for which there is no good substitute
e.g. CASURECO, PIWAD, PENSUMIL
3. Oligopoly – is a market situation in which the number of
sellers is small enough for the activities of one seller to
affect the activities of the other and vice-versa; few
sellers
e.g. gasoline station, cement, airlines, car industry,
beer market
4. Monopolistic competition – according to Edward H.
Chamberlin it is a market situation in which there are many
sellers of a particular product, but the product of each
seller is in some ways differentiated from the product of
every other sellers
e.g textile products, bath soap, headache medicine,
alcohol
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 10
CHAPTER II
DEMAND, SUPPLY AND MARKET EQUILIBRIUM
Background:
Demand and Supply are the two words that economists use more
often
Demand and Supply are the forces that make market economies work
Modern economics is about demand, supply and market equilibrium
Example:
Table 1. Demand schedule for product.
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 11
Demand Curve – plot of the demand schedule.
- graph of the relationship between the price of the goods
and the quantity demanded
0
Q = f(P)
Demand function:
where:
Q - quantity demanded of the good/service
P – price of the good/service
Demand equation: Q = a – bP
example: Q = 15 – 0.5P
b = 0.5 means that for every one unit change in the price,
quantity demand will change by 0.5 units.
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 12
- high price – good quality; low price – poor quality
- income – for normal (superior goods) – high income –
high demand; low income – low demand
for inferior goods – high income – low
demand
- more consumers (population) – high demand
- taste and preferences – depends
- price of related goods
substitutes – high price of calamansi, low demand; high
demand for camatis
complements – high demand for coffee, high demand for
creamer
Some definitions:
Illustrations: AMPALAYA
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 13
50
45
40
35
30
25
20
15 D2
10 D1
5
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 14
Law of Consumption:
Quantity = Q(Px)+Q(Py)+Q(Pn)
Mua = MUo
Pa Po
24 = 24
2.3 DEMAND ELASTICITY
Q1 – Q2 P1 – P2
= ————————— —————————
Q1 + Q2 P1 + P2
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 15
Comparison of slope and elasticity
ΔQ % ΔQ
Slope = ———— elasticity = ——————
ΔP % ΔP
Let P1 = 9 Q1 = 4
P2 = 8 Q2 = 6
4 - 6 -2 -2
slope = —————— = ————— =
9 - 8 1
4 – 6 9 – 8 -2/10 -0.2
elasticity = —————— ———————— = ———————— = _______= -3.3
4 + 6 9 + 8 1/17 0.06
│E│ › 1 elastic % ΔQ › % ΔP
│E│ ‹ 1 inelastic % ΔQ ‹ % ΔP
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 16
Relationship of demand elasticity (E) and total revenue (TR)
= Price X Quantity or PQ
Price Quantity TR
1 20 20
2 18 36
3 16 48
4 14 56
5 12 60
6 10 60
7 8 56
8 6 48
9 4 36
10 2 20
D Q
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 17
Table 5. Summary
Price Price
Increase Decrease
│E│› 1 TR TR
P P
P1
P P2 P1
P P2
D D
0 Q 0 Q
Q1 Q2 Q1 Q2
Q Q
Inelastic Demand Elastic Demand
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 18
SEATWORK I
DEMAND
Quantity purchased
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 19
banana farmers if there will be an expected to total
increase in the price of bananas. Explain why?
2.4 SUPPLY AND MARKET EQUILIBRIUM
Example:
Supply function:
Q = f(P)
where:
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 20
Q – quantity supplied of the good or service
P – price of the good or service
Supply equation:
Q = c + dP
where:
c – intercept of the equation
d – slope of the function
example: Q = 20 + 0.7P
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 21
- change in supply refers to shift in the entire supply
schedules that were held constant in the definition.
P P
S1 S2
S2
S1
Q1 Q2 Q Q2 Q1 Q
(a)an increase in supply (b) a decrease in supply
P S
equilibrium point
D
Q
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 22
Illustration: Demand and Supply Together
At P2.00 Qs = Qd
The Equilibrium of Supply and Demand
S
Equilibrium
Price
2.00 Equilibrium
D
Equilibrium
Quantity
1 2 3 4 5 6 7 8 9 10
Finding Equilibrium:
Demand equation: Q = a – bP
example: Q = 15 – 0.5P
b = 0.5 means that for every one unit change in the price,
quantity demand will change by 0.5 units.
Supply equation:
Q = c + dP
where:
c – intercept of the equation
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 23
d – slope of the function
example: Q = 20 + 0.7P
Finding Equilibrium:
Qd = a – bP Qs = a + bP
Qd = 25-5P Qs = -20 + 10P
Qs = Qd
-20 + 10P = 25 – 5P
5P + 10P = 25 + 20
15P = 45
P = 3
Substituting:
Qs = Qd
-20+10P = 25 – 5P
-20+10(3) = 25 – 5(3)
-20+30 = 25 – 15
10 = 10
P S
Surplus
P1
Peq Equilibrium
P2
shortage
D
Q
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 24
At P2 – (lower than Peq)
Questions?
a. At what price level will quantity demanded equal to
quantity supplied?
b. What is the quantity level where demand and supply be
equal?
Comparative statics:
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 25
C. III – Simultaneous shift in demand and supply curves due
to case I and case II
P
The claim that the price of any good adjusts to bring the
quantity supplied and the quantity demanded for that good into
balance.
EXERCISE II
Supply and Market Equilibrium
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 26
and how it (they) shifted. Also, label the price and
quantity changes (increase or decrease).
where:
Qd – quantity demanded
Qs – quantity supplied
P – Price of the product
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 27
EXERCISE II
Supply and Market Equilibrium
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 28
Supply equation: Qs = 2,000 + 400 P
where:
Qd – quantity demanded
Qs – quantity supplied
P – Price of the product
At P4.00
2,000 + 400(4) = 8,000 – 600 (4)
2,000 + 1,600 = 8,000 – 2,400
3,600 = 5,600 shortage
At P5.00
2,000 + 400(5) = 8,000 – 600 (5)
2,000 + 2,000 = 8,000 – 3,000
4,000 = 5,000 shortage
At P6.00
2,000 + 400(6) = 8,000 – 600 (6)
2,000 + 2,400 = 8,000 – 3,600
4,400 = 4,400 equilibrium
At P7.00
2,000 + 400(7) = 8,000 – 600 (7)
2,000 + 2,800 = 8,000 – 4,200
4,800 = 3,800 surplus
At P8.00
2,000 + 400(8) = 8,000 – 600 (8)
2,000 + 3,200 = 8,000 – 4,800
5,200 = 3,200 surplus
At P9.00
2,000 + 400(9) = 8,000 – 600 (9)
2,000 + 3,600 = 8,000 – 5,400
5,600 = 2,600 surplus
Qs Qd
2,000 + 400P = 8,000 – 600P
600P + 400P = 8,000 – 2,000
1,000P = 6,000
P = 6
At P6.00
2,000 + 400(6) = 8,000 – 600 (6)
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 29
2,000 + 2,400 = 8,000 – 3,600
4,400 = 4,400 equilibrium
Pmin
Peq
D
Q
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 30
Consequences: If the minimum price policy is effective it
will always result to excess supply or
surplus.
Peq
Pmaxxx
shortage D
Q
Consequences: If the price ceiling is effective it will
always result to excess demand or shortage.
Ways to eliminate or solve the problem of shortage:
a. to ration the limited amount of the commodity
b. to import the commodity
P S+T
P1 Buyers share S
Peq
Seller share
D
Q
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 31
ANSWER:
The share of the tax borne by the producer and the consumer
varies according to the elasticity of demand and supply curves
respectively.
P
12 S + T
11
10 .
3 9 Buyer’s
8 share S1
7 .
2 6 Sellers share
5 .
4
3 D
2
1
0
100 200 300 400 500 Q
Scenario:
Product: Softdrinks
Tax: the government imposed a 100% tax on the product
If the price of the softdrinks is P5.00, the consumer has
to pay P10.00 on account of the tax… But this is not
always the scenario
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 32
CHAPTER IV
THEORY OF THE FIRM
Output
Input
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 33
Output Output
Input Input
MP AP
TP
Fertilizer
MP, AP
Fertilizer
TP,MP,AP
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 34
- Average Product (AP) – increases and reaches its maximum
- Marginal Product (MP) – initially increases and reaches
the maximum point, thereafter starts decreasing
- Boundary between Stage I and II (delineating points)
AP = MP
General Concept:
Components of Cost:
Output Cost
Input Output
Production Cost
Function Function
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 36
I. Total Cost Curves:
TC = TFC + TVC
TC
Output
TFC
Output
TVC
Output
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 37
Relative position of Total Cost curves:
Cost
Output
AC = TC /Q
AC = AFC + AVC
AC
Output
b. Average Fixed Cost - Fixed cost per unit of product at
various levels of output.
AFC = TFC/Q
AFC
Output
c. Average Variable Cost – Variable cost per unit of
product at various levels of
output.
AVC = TVC/Q
AVC
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 38
Output
d. Marginal Cost – additional cost resulting from the
production of one additional unit of the
output.
ΔTC
MC = —————
ΔQ
MC
Output
Relative position of Per-Unit Cost Curves:
Cost
Output
CHAPTER V
PROFIT MAXIMIZATION
TC
B
Q
MC = MR
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 40
Now that we have established the condition for profit
maximization, how can this help the producer in his production
decisions. Basically the producer’s concerns are:
a. What quantity level should he produce to maximize profit?
b. For how much should he sell each unit of his product?
c. How much is that maximum profit?
Profit maximization analysis: Using per-unit cost curve
Example:
TR and TC schedules for profit maximization analysis
Price of the output: P10.00
Q TR MR TC MC II
0 0 - 5 - -5
1 ___10___ ___-___ __14____ ___9___ __-4___
2 ___20___ ___10___ __22____ ___8___ _ -2___
3 ___30___ ___10___ __28____ ___6___ ___2___
4 ___40___ ___10___ __36____ ___8___ ___4___
5 ___50___ ___10___ __45____ ___9___ ___5___
6 ___60___ ___10___ __57____ ___12___ ___3___
Case II: What happens when the price established in the market is
lower than the average cost (AC)? The firm will definitely
be making losses instead of profits. Will the firm continue
production or close-shop?
MR, MC MC MC
MR, MC AC
AC AVC
AVC
P = MR
P = MR
Q Q
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 41
AVC – recovered or lost? recovered
AFC – recovered or lost? All of it?
b. If the firm decides to close-shop
Breakdown of loss:
AVC – recovered or lost?
AFC – recovered or lost? All of it?
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 42
EXERCISE III
PROFIT MAXIMIZATION: PERFECT COMPETITION
1 40
2 70
3 85
4 120
5 160
6 220
7 300
8 400
9 520
10 660
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 43
perfectly competitive case) and a price dictators (the monopoly
case).
P
Total Revenue schedule for product X
Price Quantity TR = P x Q
12 0 _______ Q
10 1 _______
8 2 _______ TR
6 3 _______
4 4 _______
2 5 _______
Q
TR
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 44
Profit of the firm is maximum if the space between TR and TC
is greatest. This happens when the slopes of the two curves are
equal.
P P
D
Q Q
Monopolist Perfect Competition
Therefore: MR = P
If the monopolist wants to increase his output/sales, he
must lower down the price of his product (remember he faces a
downward sloping market demand curve). But, in lowering the price
for new buyers, the monopolist had to lower it for all previous
buyers. This means some revenues are lost in the process of
increasing sales. Thus, we must subtract this loss in revenue
from the additional revenue gained from selling the last unit.
Because of this, the marginal revenue of the monopolist is less
than the price, i.e.,
MR < P
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 45
8 2 16 ______
6 3 18 ______
4 4 16 ______
2 5 10 ______
P, MR
AR = P - D
Q
MR
P, MR, Cost MC
AC
D = AR
Q
MR
Q P TR MR TC MC II
0 12 ______ ______ 3 ______ ______
1 10 ______ ______ 8 ______ ______
2 8 ______ ______ 14 ______ ______
3 6 ______ ______ 22 ______ ______
4 4 ______ ______ 32 ______ ______
5 2 ______ ______ 45 ______ ______
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 46
EXERCISE IV
PROFIT MAXIMIZATION: MONOPOLY
Price (P) 52 51 50 49 48 47 46 45
No. of albums 650 700 750 800 850 900 950 1000
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 47
as a whole and how aggregate economic units or sectors,
i.e. household sector, business sector, government
sector, and the foreign sector are interrelated
-the goal is to explain the economic changes that
affect many households, business firms and markets at
once
-answers the questions like:
1) Why is average income high in some countries and
low in others?
2) Why do prices rise rapidly in some time periods
while they are more stable in others?
3) Why do production and employment expand in some
years and contract in others?
Microeconomics Macroeconomics
HH BF
HH HH HH BF BF BF
HH HH HH BF BF
1. full employment
2. full production
3. price stability
4. rapid economic growth
5. balanced trade
1. rate of employment
2. consumer price index
3. gross national product
A. Rate of employment/unemployment
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 48
A person is unemployed if he or she is on temporary layoff, is
looking for a job, or is waiting for the start date of a new job
Underemployed- part of the labor force who work for less than
40hours per week
Things to consider:
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 49
_________________________________________
2005 129.8
2006 137.9
2007 141.8
2008 155.0
2009 160.0
2010 166.1
__________________________________________
________________________________________
Year Inflation Rate
_________________________________________
2005 7.6
2006 6.2
2007 2.8
2008 9.3
2009 3.2
2010 3.8
__________________________________________
(2009-10)
GNP = ∑ Pi Qi
i= 1
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 50
given year.
GNP = P Q + P Q + P Q + ...
Current GNP
Real GNP = -----------
Price Index
Table 18. Current and real GNP of the Philippines from 1978-
1986 in million pesos
_______________________________________________________________
year current GNP CPI real GNP
2005 129,800 _________
2006 137,900 _________
2007 141,800 _________
2008 155,000 _________
2009 160,000 _________
2010 166,100 _________
_______________________________________________________________
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 51
EXERCISE V
GROWTH RATE: GNP AND PRICE INDEX
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 52
a. Solve for the real GNP from 1978-1986 using the consumer
price index given at 1978 prices.
b. Plot the current GNP, real GNP and the price index against
time. Put together current GNP and real GNP in one graph
and the price index in another graph.
d. Solve for the growth rates of current GNP, real GNP and
price index between 1978 to 1986 using the growth rate
formula
Table for growth rates (current GNP, real GNP and price index)
Growth rates
----------------------------------------------
current GNP real GNP price index
1978-79 ____________ _________ ____________
1979-80 ____________ _________ ____________
1980-81 ____________ _________ ____________
1981-82 ____________ _________ ____________
1982-83 ____________ _________ ____________
1983-84 ____________ _________ ____________
1984-85 ____________ _________ ____________
1985-86 ____________ _________ ____________
1986-87 ____________ _________ ____________
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 53
CHAPTER VII
NATIONAL INCOME ACCOUNTING
a. household sector
b. business sector
c. government sector
d. foreign sector
1. durable goods
2. non-durable goods
3. services
1. residential construction
2. business fixed investment
3. change in business inventories
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 54
C. Government sector-expenditure called “Government Purchase of
Goods and Services”
1. national government
2. local government
1. export
2. import
GNP = C + I + G + (X-M)
where:
Example:
Net factor income from the rest of the world 244992 267505
EXPENDITURES ON GROSS NATIONAL PRODUCT 3918679 4290199
Gross National Product(million U.S. dollars)* 76848 83138
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 55
salaries earned by households, fringe benefits,
private pension and welfare funds.
Example:
GNP via the Income Approach, CY 1986
(at current prices in million pesos)
Item 1986
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 56
Value added = value of final sales – purchase from other firms
Coal 0.5
steel car car
Mines Mill Plant Dealer Buyer
.2 .2 .1
iron 1.5
Example:
Gross National Product via Value Added Approach
CY 1986 (at current prices in million pesos)
Item 1986
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 57
Gross domestic product 626,717
Net factor income from abroad (12,426)
Gross national product 614,291
EXERCISE VI
GNP ACCOUNTING
Item
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 58
2. How much is the National Income (NI) for 1985?
3. How much is the Gross Domestic Product (GDP) for 1985?
4. If the GNP for 1985 is expressed in 1978 prices, it will be
equal to Ρ1, 686 M. In principle, how much was the
percentage increase in prices between 1978 and 1985?
How much is the annual inflation rate?
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 59
CHAPTER VIII
THE EQUILIBRIUM OF INCOME
income
resources
HH HH BF BF
HH HH HH BF BF BF
HH HH BF BF
consumption expenditures
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 60
Mathematical representative of the macroeconomic model:
Y = C + I + G + (X-M)
Equilibrium Condition:
Leakages = Injections
S + T + M = I + G + X
C = a + bY
where:
C – consumption expenditures
a – intercept
b – slope
Example: C = 20 + 0.8 Y
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 61
II. Saving function – relationship between saving and
disposable income.
Y = C + S
Y = (a + bY) + S
Y = a + bY + S
Y – bY – a = S
(1-b)Y – a = S
S S = -a + (1-b)Y
Example: C = 20 + 0.8 Y
S = -20 + 0.2 Y
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 62
Assumptions:
1. No business sector
2. No government sector
3. Closed economy
Given: C = 20 + 0.80Y
Questions:
Solution:
Graphical Illustration:
C 45o
Y
Yeq
1.Household sector
Model: Y = C + I
2.Business sector
Assumptions
Given: C = 20 + 0.8Y
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 63
I = 10
Questions:
1.What will be the equilibrium level of income?
2.How much is consumption a the equilibrium level of income?
3.How much is saving at the equilibrium level of income?
4.Compare thi Yeq of the one-sector case?
Which one are larger?
5.What can you conclude about the effect of investment on
the equilibrium level of income whan added to the system?
C,I 450
C + I
Y
Yeq Yeq1
t = Y
t = Y + I
t = Y + I b2I
t = Y + I b2I + b3 I
t = Y + I b2I + b3 I + b4I
:
t = Y + I b2I + b3 I + b4I + .....+ bn I
t = Y + 1 I
1-b
Multiplier = KI = 1 or 1
1-b _____
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 64
Example: C = 20 + 0.80 Y
I = 10
Y = 1 (10) = 50
0.8
Summary:
a. one sector model Yeq = 100 Y = 50
b. two-sector model Yeq = 150
Graphical illustration:
C,I 450
C + I
Y
Yeq Yeq1
Chapter IX
GOVERNMENT AND FISCAL POLICY
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 65
a. to collect taxes from the people
b. to spend/ invest on public utilities like roads/bridges,
public schools and hospitals etc.
Case I: Assumptions
a. investment is fixed or constant
b. government expenditure is fixed
Given: C = 20 + 0.8 Yd
I = 10
G = 30
Questions:
1. What is the equilibrium level of income considering all the
information above?
2. What is the level of consumption at the equilibrium level of
income?
3. What is the level of saving at the equilibrium level of
income?
4. Compare this equilibrium level of income (Yeq2) to the
(Yeq1) of the two sector case.
5. Which Yeq is higher? What can you conclude about the effect
of government spending in the equilibrium level of income of
the economy?
Illustration:
C,I,G
45o
C–I-G
Yeq1 = 150
} ΔY = 150, but injected only G= 30, why?
Yeq2 = 300
1
Government expenditure multiplier: KG =
1-b
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 66
Example: ΔY = (5) (30)
ΔY = 5(30)
ΔY = 150
Given: C = 20 + 0.8 Yd
I = 10
G = 30
T = 30
Questions:
1. What is the equilibrium level of income considering all the
information above?
2. What is the level of consumption at the equilibrium level of
income?
3. What is the level of saving at the equilibrium level of
income?
4. Compare this equilibrium level of income Yeq to the Yeq of
Case I wherein no taxes were collected from the people.
5. Which Yeq is higher? What can you conclude about the effect
of taxation in the equilibrium level of income of the
economy?
Classification:
450
C,I,G
C+I+G (without tax)
C+I+G (with tax)
Yeq2 = 300
-b -.8
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 67
Tax Multiplier: KT = = ______ = -4
1-b 1-.8
= (-4) (30)
= -4(30)
ΔY= -120
Balanced-budget multiplier:
KG + K T = 1
1 -b 1-b
+ = = 1
1-b 1-b 1-b
C,I
450
C+I+-
C+I
Y
Yeq Yf
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 68
Definitions:
Yeq – equilibrium level of income actually achieved
within a given time period.
YF -full employment level of income (an objective)
Types of gap:
YF >Yeq --deflationary gap
YF< Yeq --inflationary gap
Fiscal tools:
1. Government spending (G)
2. Taxation (T)
Yeq - 180
Yeq – 200
Reminder:
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 69
2. If investment tends to exceed savings, government should try
to offset this discrepancy between saving and investment by
increasing taxes.
1. Through increase in G
ΔY = K . (ΔG)
20 = ( ) ΔG
Gap = 20/5 = 4
2.Through decrease in T
ΔY = K . (ΔT)
20 = ( )ΔT
Gap = 20/-4 = -5
3.Through balanced-budget G=T
ΔY = K . Δ (G or T)
20 = (1). ΔG/T
Gap = 20/1 = 20
EXERCISE VI
INCOME DETERMINATION AND FISCAL POLICY
Yd C S
0 50 _______
50 75 _______
100 100 _______
150 125 _______
200 150 _______
250 175 _______
300 200 _______
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 70
B.Level of investment I =100
C.Government spending G =50
D.Lumpsum tax T =100
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 71
EXERCISE X
The Central Bank and Monetary Policies
Function of money:
1. Medium of exchange
2. Store of value
3. Unit of amount
Examples:
1. Cash
2. Checking amount
3. Credit cards
4. Saving deposit
5. Time deposit
6. Travellers check
7. Bonds
8. Stocks
9. Jewelries, car, house, etc.
Md
M
Supply of money:
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 72
To make the analysis simple, it will be assumed that the
supply of money in the economy is fixed or constant; and is set
by the Central Bank.
Ms
i MS
Md
M
i i
MS
MD I
M I
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 73
encourage investment in the
business sector
How can the Central Bank after the volume of money supply in the
economy?
a. Reserve requirement
b. Discount rate
c. Open Market Operation
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 74
In general, if a certain amount of addition demand deposits
is made available to the banking system, the banking system as a
whole can increase the money supply by an amount equal to the
amount of the additional demand deposit multiplied by the
reciprocal of the reserve requirement ratio.
Multiplier Formula: ____
Summary
What to do with:
a.Reserved requirement ratio _______________________
b.Discount rate ___________________________________
c.Open-market operation ___________________________
What to do with:
a.Reserve requirement ratio _________________________
b.Discount rate ____________________________________
c.Open market operation____________________________
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 75
CHAPTER XI
INTERNATIONAL TRADE
Model: Y = C + I + G + ( X – M )
Equilibrium Condition: I + G + X = S + T + M
Trade theories
1. Theory of Absolute Advantage
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 76
2. Theory of comparative Advantage
Assume:
2 countries - Country 1 and Country 2
2 goods - good A and good B
1 factor - Labor
Absolute advantage:
Country 1 Country 2
Good A 2 1
Good B 6 4
Comparative advantage:
Country 1 Country 2
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 77
Good A _______ _______
Good B
Barriers to trade
1. Tariffs- a tax to imports
2. Quotas- quantitative limit on the physical volume of imports
of a goods.
LIST OF REFERENCES
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 78
McConnell, C.R., Economies, 5th edition, McGraw-Hill Book Co.,
1977.
AGRARIAN REFORM
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 79
Meaning of Land Tenure Structure
1st Concept
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 80
The structure of supporting services – is a concept which
involves matters like credit, marketing the supply of
agricultural requisites (such as seeds, fertilizers, and
insecticides), processing, storage, etc. and other technical
assistance and/or services in so far as they have some immediate
bearing on reforms of tenure and production structures.
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 81
GENERAL PRINCIPLES OF TAXATION
Attributes/Characteristics of Taxes
Importance of Taxes
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 82
and distinct from those of the person composing it as well as
from that of any other legal entity to which it may be related.
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 83
for instance, the purpose is to grant incentives or exemptions in
order to encourage investment and thereby promote the country’s
economic growth.
There are two reasons why the exercise by the State of its taxing
power is justified. One is necessity and the other is the grant
of protection and benefits by the State to its citizens.
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 84
e. The apportionment of the tax, i.e., whether the tax shall be
general or limited to a particular locality or partly
general and partly local
Aspects of Taxation
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 85
benefits are received, a healthy economic standard of society
known as “damnum absque injuria” is attained
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 86
follows that the exemption under Art VI, Sec 28(3) of the
constitution does not apply to special assessments.
5.License Fee
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 87
A.Concept, Nature, and Characteristics of Taxation and Taxes
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 88
person or property – the person and the property must be
subject to the jurisdiction of the taxing state. This is
necessary in order that the tax can be enforced. The taxing
power of the state necessarily stops at its boundary lines
Lecture Notes in Soc Sci 3. Basic Economics (w Land Reform & Taxation)Page 89